Investors, service providers and experts from the financial services industry gathered at the annual LendIt conference, held in New York March 6–7. The common themes from this gathering of the world’s marketplace lending decision-makers: when it comes to survival in the evolving fintech space, adapting to market opportunities, building on tech developments and forming partnerships are critical.
Lenders Look to Rally in 2017
Keynote speaker, Scott Sanborn, CEO of Lending Club, referred to 2016 as a shakeout year for the industry. The peer-to-peer lender’s former CEO resigned in May of 2016, after an internal investigation found improprieties in its lending process. The company’s stock price plummeted as investors expressed concern over its business model, exacerbating general fears over the quality of loans produced by the entire industry of online lenders.
Lending Club’s eventual recovery is evident in its 2016 fourth quarter growth; the company offered more loans to consumers, surviving the test of investor demand. According to Sanborn, the more than 5,000 professionals in attendance at LendIt indicate an industry-wide rally, showing that online lenders are “in it to win it” in 2017.
He discussed the challenges in the current marketplace lending environment, comparing the industry to the growth of online retailers in the 90s such as Amazon. Sanborn cited Amazon’s early challenges and eventual triumph over retail giant Walmart as an example of adaptability in providing the best services for market needs, and suggested marketplace lenders follow suit in identifying market opportunities, building on proprietary platforms and partnering with other companies.
Industry players, Sandberg said, will have to think about “how they unleash their platform potential and amplify their core ambitions.” He mentioned enabling one-click underwriting and delivering loan approval instantaneously, as well as forming partnerships where online marketplaces control the customer experience while opening up their technology to other institutions.
President of Prosper and keynote speaker Ron Suber addressed the challenges facing online lenders last year, saying, “success this past year required the patience of a monk, agility of a cheetah and stamina of Rocky Balboa.”
The platforms that survived 2016 stand to benefit from their resilience, according to Suber, who said the keys to success in the future are foundational elements. These include loan performance, data transparency, platform profitability, customer acquisition and automation. Suber also cited platform partnerships with banks as a way for marketplace lenders to build a lasting, successful industry.
“Our industry should be proud, energized and excited for what’s ahead as we have the ingredients and wisdom to deliver on the opportunity ahead of us,” Suber added.
Banks Back in the Game
While marketplace lenders are hopeful for an upswing, banks are looking to be more competitive. A small business panel, held Monday and moderated by Lendio CEO Brock Blake, included representatives from two of the country’s largest banks, Bank of America and JPMorgan Chase. Both banks made it clear they intend to be the primary resources for small businesses looking for capital.
Bank of America executive Nadeem Tufail said “reputational risk” had stopped the bank from partnering in the past, but now the institution has introduced a test-run of its own fully automated approvals with the bank’s top-tier customers. Rather than build its own technology, JPMorgan Chase has a partnership with OnDeck in which the bank utilizes OnDeck’s underwriting technology to provide quicker approvals and funding to small businesses. Chase reportedly loaned $24 billion to small businesses last year.
In a keynote speech, Antony Jenkins, former CEO of Barclays, predicted a radical transformation in financial services technology, warning banks to adopt such things as descriptive ledger, machine learning, cloud technology, artificial intelligence and voice recognition or be left behind.
According to Jenkins, a “fundamental re-architecturing” will take place in the next 10 to 20 years, with more international markets emerging. His advice for remaining competitive: reimagine the customer experience, develop a deep understanding of technology and have a radical mindset.
Tech Developments Are Key for Growth
Technological developments are king in 2017, according to several executives who cited technology such as artificial intelligence (AI) as a game changer for online lenders.
“We can analyze transactions in seconds to improve results,” said Ash Gupta, president of American Express’s global credit information management. AI capabilities are helping American Express make better offers to its customers through mining data to pinpoint buying patterns, though Gupta added that human analysis makes the technology more effective.
“We need to be able to explain to the customer exactly why we are taking the action that we are,” he said.
IBM’s Brian Walter also spoke on the importance of AI in financial solutions, mentioning the company’s supercomputer IBM Watson’s ability to delve into customer profitability and preferences. This kind of technology can allow lenders to offer more personalized loans, and it can help a business manage risk and compliance in the ever-changing regulatory environment, Walter said.
Good News for Small Business Owners
OnDeck CEO Noah Breslow predicted that by 2020 almost all small business lending will be done online. He cited global growth as well as partnerships between online lenders and banks as unstoppable trends in online lending. Breslow said lenders will forge ahead as they engage with policy makers to develop a sound regulatory framework, good news for small business owners as the small business lending landscape becomes more inclusive and expansive.
Monday the Coalition for Responsible Business Finance (CRBF) and the Innovative Lending Platform Association (ILPA) announced plans to join forces. The two will operate together as the ILPA and will represent the online lenders serving small businesses. The partnership is another step in promoting responsible lending and increased access to capital for Main Street businesses. The group will also focus on advancing standards within the online lending industry, pushing for more cross-industry solutions to promote transparency and improved access to loans for small business borrowers.
LendIt was founded in 2012 by three investors in the online lending industry focused on connecting the global lending community. Today LendIt draws an international audience with conferences in New York, San Francisco, London, Shanghai and Beijing.